Silven Properties Ltd v Royal Bank of Scotland plc [2004] 1 WLR 997

Key points

  • A mortgagee in possession has no duty to exercise his power of sale; he is required to take reasonable care of the property but is not required to improve it

Facts

  • RBS (D), the mortgagee, obtained possession of a property after the borrower (C) defaulted
  • C alleged that D was under duties not to sell the properties as they were but to
    • pursue planning applications;
    • proceed with the grant of leases; and
    • defer a sale until these goals were achieved so as to obtain the best price obtainable

Held (High Court)

  • D was not under a duty to pursue planning applications

Lightman J

What are the duties of a mortgagee in possession?

No duty to sell

  • The mortgagee has no duty to exercise his power to sell, he is entitled to remain totally passive after coming into possession

Duty to take reasonable care of property

  • Taking possession requires him to take reasonable care of the property
  • This requires him to be active in protecting and exploiting the security, maximising the return, without taking undue risks: Palk v Mortgage Services Funding

Duty to preserve but not improve

  • He is under no obligation to improve the property or increase its value, but there is a duty to preserve the value (not improve it)
  • Once the mortgagor has started seeking planning approval to increase the value, he is under no obligation to continue and he can stop at any time
  • But if he were to claim for compensation for costs of obtaining the planning permission or lessee from the mortgagor he must have acted reasonably in incurring those costs and fairly balanced the cost of the exercise against the potential benefits taking fully into account the possibility that he might at any moment pull the plug on these efforts and the consequences for the mortgagor if he did so